WASHINGTON—The U.S. Senate is taking another shot at regulating the crypto industry with a new bill that would place stringent anti-money laundering (AML) requirements on decentralized finance (DeFi) protocols.
The bipartisan bill, the Crypto-Asset National Security Enhancement Act of 2023, would require DeFi protocols to impose bank-like controls on their user base, according to a description of the bill reviewed by CoinDesk.
The bill intends “to fight the rise in crypto-facilitated crime and close off avenues for the evasion of money laundering and sanctions measures that are critical to our national security,” the briefing doc reads.
‘Harder to Regulate’
“DeFi protocols are financial applications that allow anyone with a crypto wallet to borrow, lend and trade cryptocurrency via smart contracts,” CoinDesk stated. “They’re harder to regulate than, say centralized companies such as Coinbase, because they operate directly on permissionless blockchains.
“The bill envisions sidestepping these issues by placing requirements on ‘anyone who controls a DeFi protocol or makes available an application to use the protocol,’ likely a reference to groups who build user-friendly frontends for protocols’ otherwise cumbersome smart contracts, as Uniswap Labs does for Ethereum’s top decentralized exchange,” CoinDesk continued.
The briefing doc further notes, “If nobody controls a DeFi protocol, then—as a backstop—anyone who invests more than $25 million in developing the protocol will be responsible for these obligations.”